EU Agrees New Derivatives Rules, Stalls Again on Bank Capital

European Union lawmakers
pressed ahead with new rules for derivatives on Thursday,
helping the bloc meet one global pledge to make markets safer as
it struggles to meet another on raising bank capital levels to
diminish risk.

BRUSSELS/LONDON, Feb 7 European Union lawmakers
pressed ahead with new rules for derivatives on Thursday,
helping the bloc meet one global pledge to make markets safer as
it struggles to meet another on raising bank capital levels to
diminish risk.

The European Parliament, meeting in Strasbourg, France,
decided not to proceed with a resolution which, if passed, would
have forced regulators to rethink long-awaited derivatives
regulation, triggering delay and uncertainty for markets.

EU financial services commissioner, Michel Barnier, said the
new rules, which say derivatives trading contracts must be
cleared and recorded, can now come into force, most likely
mid-March. Currently most derivatives transactions are not
cleared and there is no snapshot of trades to see who is
exposed, potentially creating huge uncertainties.

"By adopting these standards the EU meets its G20 commitment
in the context of the reform of financial services. The new
rules will reduce the risks related to derivative transactions,"
Barnier said in a statement.

The resolution had been brought by lawmakers seeking support
for companies who use derivatives to insure against adverse raw
material prices. Kay Swinburne, a British centre-right member
wanting amendments, said the commission had agreed to provide
guidance to those firms to help them avoid compliance costs.

Barnier now needs the United States to accept that the new
rules are as strict as their own. This would mean that EU-based
firms who do business in America would not have to comply with
U.S. rules as well.

He meets with U.S. regulators next week in Washington.

"I will be able to reassure our American counterparts that
the EU is meeting its G20 commitment on derivatives, and that we
are now in a position to apply stringent rules in Europe that
are equivalent to the ones in the United States," Barnier said.

It is unclear whether U.S. regulators can stop their rules
from affecting EU firms as they are part of a law Congress
adopted.

BASEL STANDOFF

EU lawmakers and member states also tried again to agree key
new banking regulation - the Basel III accord that would raise
capital levels - but failed.

Agreement is proving tricky because some countries such as
Britain want the right to raise capital levels beyond those
proposed without having to seek approval from Brussels. Britain
also wants to renegotiate the cap on bonuses demanded by members
of the European Parliament, which it opposes.

The European Parliament managed to introduce some bonus
curbs in a previous round of laws in 2010 and wants to tighten
those further in the run up to its election in 2014.

Barnier said last month the capital rules would be applied
in January 2014, one year later than envisaged by the G20, but
diplomats around the negotiating table say even that will be a
challenging deadline to meet.

"At the moment we are in a standoff," an EU diplomat said on
condition of anonymity.